2009 - %3, February

During the primary campaign, one of the big disagreements between Barack Obama and Hillary Clinton was about healthcare mandates. Should a national healthcare plan require that everyone be covered one way or another, or should coverage be optional? Clinton favored a mandate and Obama didn't, but Ezra Klein has been talking to some of the Obama folks involved in formulating the upcoming budget and says that things have changed:

The budget — and I was cautioned that the wording "is changing hourly" — will direct Congress to "aim for universality." That is a bolder goal than simple affordability, which can be achieved, at least in theory, through subsidies. Universality means everyone has coverage, not just the ability to access it. And that requires a mechanism to ensure that they have it.

Administration officials have been very clear on what the inclusion of "universality" is meant to communicate to Congress. As one senior member of the health team said to me, "it will cover everybody. And I don't see how you cover everybody without an individual mandate." That language almost precisely echoes what Senate Finance Chairman Max Baucus told me in an interview last summer. "I don’t see how you can get meaningful universal coverage without a mandate," he said. That judgment was further emphasized last fall, when he released the first draft of his health care plan and built in an individual mandate.

This strikes me as a concession to reality on Obama's part — both political reality and policy reality. It's also good news. Regardless of the details, I think it's important to commit to the principle of universality in a concrete way, and an individual mandate is one way to do that. It's not the way I'd do it, but at least once the principle is in place it makes it a lot easier to argue productively over the details. So two cheers for the mandate. It's a pragmatic and welcome shift.

Bond king Bill Gross thinks it would be a bad idea to nationalize banks and force bond owners to take a haircut. This would "create an instability policymakers should not want to risk," he says, and might undermine other financial sectors such as insurance companies and credit unions. Megan McArdle is unimpressed:

The problem is that seeing as he's a gigantic manager of bond funds, this is also the policy that will make Bill Gross best off.

This is, writ large, the problem faced by Geithner and Bernanke: the people who know the most are those with the most to lose or gain by their actions. If they do not talk to the experts, they will do something incredibly stupid through not having thought through the possible consequences. If they do talk to the experts, their ears will be filled with advice that is both plausible and self-serving.

....I am concerned about the sudden consensus about nationalization — I haven't yet seen a good reason to believe that a tiny bank in a tiny nation like Sweden presents a good model for tackling the problems of the largest financial services company in the world. But the fact that Bill Gross is worried about bondholders taking a loss makes me more inclined to favor the notion. It's perverse, I know.

Nationalization should be a last resort. And there's no question that nationalizing a multinational giant like Citigroup is a far more complex undertaking than nationalizing Nordbanken. On the other hand, there's just no way that taxpayers can be expected to continue shoveling capital into big banks in return for tiny minority shares. In the case of Citigroup, for example, the government has so far handed over $45 billion to a company that could be purchased lock, stock and barrel for only $10 billion. There's just no way that taxpayers are going to keep putting up with that, and they shouldn't.

In any case, it's also possible to overstate the difficulty of nationalizing a big money center bank, I think. It's not as if we'd fire the entire staff, after all. What would happen in reality is that the board of directors would be dissolved, some of the senior staff would be replaced, shareholders and bondholders would take a hit, and the bank would continue running as normal except with a stronger capital base and government guarantees behind it. Then, in a few years, it would be refloated and put back in private hands.

It would be nice if it doesn't come to that. But there's a pretty good chance that it will. Not because anyone wants it to, but because, eventually, it will probably be the least bad option left for the weakest of the banks.

Chuck Schumer says that grandstanding governors who hope to score political points by turning down some minuscule proportion of the stimulus money earmarked for their state have another thing coming:

No language in this provision [] permits the governor to selectively adopt some components of the bill while rejecting others. To allow such picking and choosing would, in effect, empower the governors with a line-item veto authority that President Obama himself did not possess at the time he signed the legislation.

Take that, Bobby Jindal! Or, rather, thanks, Chuck Schumer! After all, if Schumer is right, it means that guys like Jindal are off the hook. "I tried to be fiscally responsible, folks, I really did, but the Democrats didn't give me any choice." Long sigh. "So I guess I'll have to take all their money after all." Even longer sigh.

But I guess that's OK. A bit of Republican theatrics won't hurt us, and at least this means that Louisianans will get the unemployment benefits that Jindal tried to deny them. Which is not only good for them, but good for the economy too, as even commie pinko Fed chairman Ben Bernanke recognizes:

BERNANKE: If unemployment benefits are not distributed to the unemployed, then they won't spend them and it won't have that particular element of stimulus.

SEN. JACK REED (D-RI): So if this was done on a wide basis, it would be counterproductive, not productive?

BERNANKE: It would reduce the stimulus effect of the package, yes.

If you have some principled objection to the idea that fiscal stimulus works, then fine. But if you don't, there's no reason to object to extended unemployment benefits. In terms of bang for the buck, it's probably one of the best uses of stimulus funds in the entire package.

Substantively, I'm not a big fan of legalization on the alcohol model; a legal pot industry, like the legal booze and gambling industries, would depend for the bulk of its sales on excessive use, which would provide a strong incentive for the marketing effort to aim at creating and maintaining addiction....So I continue to favor a "grow your own" policy, under which it would be legal to grow, possess, and use cannabis and to give it away, but illegal to sell it. Of course there would be sales, and law enforcement agencies would properly mostly ignore those sales. But there wouldn't be billboards.

I get his point: decriminalizing marijuana is one thing, but do we really want the Philip Morris marketing machine working overtime to produce endless PR campaigns allegedly aimed at adults but in reality doing nothing of the kind? Probably not.

But I wonder if there's some middle ground here? I'm always dubious of proposals that rely on law enforcement to "mostly ignore" technical violations of a law, since that's an open invitation for them to abuse their discretion. So I'd prefer to legalize commercial operations. But practically speaking, is there some way to open up commercial cannabis sales but limit their operations to a fairly small size? It seems like there ought to be, and it would certainly be a boon to those of us without green thumbs. Ideas?

Two reports released recently—one from the UN's Environmental Programme and the other by the World Bank—warn that dramatic, irreversible climate shifts are coming faster than the Intergovernmental Panel on Climate Change (IPCC) anticipated. In the IPCC's last report, published in 2007, it expected that global sea levels could rise up to two feet: the UN document says it may be more like six feet. More disturbingly, it says that "we may have already passed tipping points that are irreversible within the time span of our current civilization."

Although we've covered tipping points in previous issues of Mother Jones, it's still disturbing to hear the UN say they may have already been tipped, and not in our favor. For those who are interested, the World Bank report goes into further detail about tipping points as seen in the Andes, coral reefs, Gulf of Mexico wetlands, and Amazonian forests that may or may not be too far gone to do anything about.

In April 2002, I sat in the office of UC Berkeley environmental science professor Ignacio Chapela as an ancient telephone chortled incessantly with calls from scientists and journalists curious about his latest study, a paper published in Nature showing how genes from GM corn entered local varieties of the plant in Mexico, where GM crops are banned. Samples of the corn sat in vials on his desk. An international controversy had erupted over the experiment, and earlier that month the prestigious journal published an unprecedented near-retraction. “Nature has concluded that the evidence available is not sufficient to justify the publication of the original paper,” said a terse editorial note. Chapela admitted to making a few interpretative mistakes, but stood by his findings even when a study by a different team of researchers in 2005 was unable to replicate his results. His findings were finally corroborated this week by scientists from Mexico, the United States, and the Netherlands who looked at thousands of seed samples from hundreds of Mexican corn fields and found that around 1 percent of them had genes that had jumped from GM varieties. Even before this week, major detractors agreed with Chapela's main point. Corn disperses pollen easily, so one should expect that GM pollen carried by the wind has mated with local corn varieties in much of the world.

Although neither expensive--total cost $2000--nor surprising, Chapela’s study was attacked because it provoked ongoing feuds. Disagreements about what might happen when GM crops interbreed with their unaltered neighbors are now more than a decade old. Scientists still debate whether transgenics will diminish genetic diversity in local crop varieties, kill beneficial creatures, or reduce the ability of entire plant populations to survive.

Scientists already know that pollen from GM crops can kill beneficial insects. For example, the Bt gene in corn poisons pests like the European corn borer but could also inadvertently wipe out the valuable Typhlodromalus aripo. The T. aripo, as it is known, eats both corn pollen and the ignominious green mite, which wreaked havoc on Africa’s cassava crop in the 1980s and early 90s. The mite was accidentally introduced from South America and scientists combated it in 1993 by importing the T. aripo from Brazil. After it went to work eating mites, it immediately increased cassava yields by 35%. The addition of Bt pollen to that diet could be a boon to the mites and a disaster for T. aripo and farmers. “If it destabilized cassava,” says Andrew Paul Gutierrez, a Berkeley researcher who has done computer modeling on GM crops, “it could destroy the basic food staple for 220 million Africans in an area twice the size of the United States.”

Accepting such risks becomes even more difficult given that Bt is probably only a temporary solution to insect invasions. Last February, University of Arizona researcher Bruce Tabashnik documented the first case, in GM cotton, of insects developing a resistance to the Bt gene. “My own experience in the history of insect resistance is that they develop resistance to whatever control measure is used against them,” he told me in 2002. “I think it’s just a matter of time.”

Now, I do understand that drastically reducing the cap on the mortgage interest rate now, in the midst of a housing crash, would be kicking the markets when they are down. Yet this crisis provides us with an opportunity to act that will be lost if we wait until housing prices rise again.

So here is my utterly quixotic proposal. Enact legislation now that will gradually decrease the cap on the mortgage principal for which homeowners can deduct interest payments by $100,000 a year over the next seven years until it hits $300,000.

Sure, fine by me. The home mortgage deducation is a perfect example of a policy that might have made social sense at one time, but outlived its usefulness years ago and now continues a zombie-like existence as one of the third rails of American tax policy. But why bother decreasing the cap? Why not just decrease the amount of interest you can deduct from 100% to 95% to 90% and eventually to zero over 20 years, starting, say, in 2011? And replace it each year with a proportionate increase in the standard deduction. (Or maybe something else. Ideas welcome.)

Or replace it with nothing at all, in the name of fiscal responsibility. Not many votes in Congress for that, though, are there?

Not only is it obviously stupid for political commentators to be assessing the quality of economic policy by tracking the ups-and-downs of the stock market but the fact that the commentators who want to do this keep wanting to specifically use the Dow Jones Industrial Average just highlights their ignorance....Why not use the S&P 500? Or the Wilshire 5000?

To be clear, that wouldn’t make this idea any less dumb on the merits. But if we’re going to have stock-based punditry then it could at least be informed stock-based punditry. Back in the real world, the key issues are the trajectory of employment and income.

Clearly, the answer is that nobody makes or loses money based on betting on the unemployment rate. And we don't have exciting video of traders going nuts on exchange floors when hourly wage numbers are announced. And anyway, all that stuff is only available on a monthly basis. You can hardly run a 24/7 cable show based on that, can you?

In CNBC's defense, it's worth noting that they're just giving the people what they want. Lots and lots of fairly ordinary people have money invested in the stock market, but virtually nobody has a bunch of money invested in derivatives based on, say, the TED spread, even though right now it might be more important than the DJIA. What's more, it's sort of interesting just how good a proxy for the economy the Dow Jones is. Take a look at a historical chart and you'll see that its ups and downs correlate pretty well to the overall state of the economy. If you're looking for a sexy, fast-moving, gut-wrenching indicator of the economy's animal spirits, you can do a lot worse than the DJIA.

And why the DJIA instead of the S&P 500? It's the power of the first mover. The S&P didn't get started until 1923, and even then was published only once a week. Boring! By the time they finally got around to doing things daily, the DJIA was the king of quotes, and it's stayed that way ever since. And since the two indexes follow each other so closely anyway, I guess there's never been any really compelling reason to switch loyalties. Plus it helps when the guys who own the average also happen to own the country's biggest financial newspaper. That kind of synergy is hard to beat.

Last year, liberals in DC were furious with the US Supreme Court for striking down the city's strict gun-control law. In DC v Heller, the high court found that individuals have the right to bear arms, and not just within the 2nd Amendment's famous "well-armedregulated militia." Since then, gun-rights groups have used that decision to challenge gun-control statutes all across the country. Strangely enough, the National Rifle Association is getting some help in at least one of those case from liberal Yale law profs and other activists normally on the other side of such fights. Why?

Legal Times' Tony Mauro explains that the liberal lawyers see progressive benefits to the cases. Doug Kendall, founder of the Constitutional Accountability Center, tells Mauro that if successful, the lawsuits "would have a "lift-all-boats" effect, strengthening free speech, and possibly even abortion and gay rights, at the same time that it bolsters the right to bear arms." Of course, gun control groups aren't so happy about the new-found alliance. The legal director of the Brady Center to End Gun Violence tells Mauro, "It's unfortunate that they would choose to participate in a gun case to grind that particular ax." Still, given that most people think gun control laws don't work, maybe trading useless gun control measures for stronger legal protections for the rights of women, minorities and gays is actually a pretty inspired idea.